Taxation is an activity that has been in existence for centuries as it is part of what makes a country be able to run smoothly.
Taxes are basically mandatory fees levied on corporations or individuals by their governments in order to finance government projects and activities. For a country to run smoothly and its citizens to be happy, certain services and infrastructure have to be maintained. Sewers have to be maintained, schools have to be built, security has to be provided, government officers have to be paid, roads have to be built and libraries are also needed.
All these services and infrastructure need funding in order to be achieved, and taxation is the quickest and easiest way to achieve this. As much as taxes can be a source of discomfort for some, it can be said to be a necessary evil.
Understanding Tax
In order to maintain the infrastructure in a country and better the lives of the people living in it, taxation is important. In the US and many other nations, a percentage of the tax collected is always remitted to the government. Rules and regulations have been put across for ensuring the collection of taxes such that failure to do so by any individual or corporate is a crime punishable by law.
The IRS (Internal Revenue Service), for instance, is the body mandated by the United States’ government to ensure the collection and filing of tax returns.
Taxation systems vary across the globe and it is, therefore, necessary for you as a local or foreign investor to understand how the system works in your chosen area of investment. The US, for instance, uses the progressive taxation system where the more and individual or corporation earns, the more they are taxed. Their taxes are also imposed on local, state and federal levels. In this scenario, the local government collects taxes such as property taxes, the state government collects sales taxes and the federal government collects corporate, payroll and income taxes.
All the revenue collected from taxation will then be used for government and public services that include social and medical care.
Types of Taxes:
Tax calculation involves determining the amount of tax owed or the refund due based on applicable laws and regulations. But numbers can vary depending on the tax system and the country.
The first step is calculating the taxpayer’s taxable income, which involves adding all the income earned during the tax year. Taxable income sources include wages, self-employment income, and investment income. Certain deductions, exemptions, and adjustments may be subtracted to arrive at the taxable income.
Understanding how each is computed can be a mundane task with different types of taxes that the government collects. Fortunately, people can use tax software to calculate taxes in just a few seconds.
The user provides the necessary information, such as income sources, deductions, credits, and other relevant financial details required to complete their tax return. Once the data is validated, the software employs a set of predefined tax rules to calculate the user’s tax liability, considering income brackets, deductions, credits, and exemptions to determine the taxes owed or refunded.
Many tax software programs offer additional features such as audit support, tax planning tools, and access to tax professionals for guidance and assistance. Now that you know how tax can be calculated, it’s time to know the different types.
There are various types of taxes known, some of which include the following:
- Income Tax
As the name suggests, this is a type of takes levied on an individual based on the salary they earn. The federal income tax can be both progressive and marginal. Marginal means that a person will be taxed a certain percentage which is based on the much he earns (his income bracket).
- Corporate Tax
This is tax levied on corporate profits by the federal government. Such kind of tax is used for the benefit of the nation. Corporate tax is calculated by deducting the cost of goods sold and revenue depreciation from the firm’s operating earnings. A tax rate will then be agreed depending on the result of the deductions made. These tax rates however vary worldwide and depend on the decisions made by a country’s government.
- Sales Tax
These are taxes that are imposed on goods and services offered. This tax is felt by the consumer and is implemented at the point of sale of a certain good by the retailer. The retailer will basically be the point of collection for the government. Sales tax usually varies in various, municipalities, counties and states.
- Property Tax
These are taxes imposed on land, homes and real estate and are collected by a local government. It is calculated from the value of the property including the land it sits on. Cars and boats can also be included. The money received from this is used to fund such things like, education, sewer maintenance, road construction and libraries that benefit the community.
- Estate Tax
These are taxes collected upon the death of someone. It is based on the net worth of the individual during their death. It is based on the fair market price at the time of death of a person and not on what the deceased used to purchase the asset with.
- VAT
This is tax that is imposed in each stage of a product or supply chain and finally felt in the purchase price of a product. A certain rate will be imposed on each stage of a product from the production point to the point of sale. The more a consumer demands a product the more the government will increase the VAT on that product. VAT is therefore based on a consumer’s need. VAT is a common factor in the European Union.
These are some of the important types of taxes known and it is important to understand them both as an individual or a corporate. By doing so, you are less likely to be caught unaware of any changes that may affect your earnings.
As an investor it is wise to have a taxation plan that will ensure you do not get into trouble with bodies such as the IRS. By letting Philip Stein and Associates help manage your taxes and investments, you can be guaranteed of having a piece of mind as you go about your life.
The firm has over 40 years’ worth of experience in both local and international taxation policies and is guaranteed to ensure your tax returns are up to date. The firm also ensures that is constantly updates their clients updated on any changes taking place globally, thus taking away any uncertainty that may exist.
The IRS is one visitor you do not want knocking at your do when you fail to file your returns, and jail term will be the least of your worries when they do come. Philip stein and associates will therefore, ensure that you get to avoid such scenarios by keeping you aware of the important aspects of your investments.
